The Securities and Exchange Board of India (SEBI) has proposed a new fast-track regulatory framework named GARUDA to streamline the launch and approval of Alternative Investment Funds (AIFs) in the country. Released as a consultation paper on May 20, 2026, the Green-Channel: AIF Rollout Upon Document Acknowledgement mechanism proposes a shift from pre-clearance to a disclosure-based regulatory approach. By significantly reducing waiting periods and filing hurdles, the capital markets regulator aims to boost the ease of doing business and accelerate capital deployment in India’s expanding private investment sector.
Proposing the GARUDA Framework
The Securities and Exchange Board of India (SEBI) introduced the GARUDA mechanism to modernise how investment schemes are launched and approved. Under the current regulatory regime, fund managers face lengthy administrative cycles when registering new schemes. The proposed framework shifts the regulatory focus from exhaustive pre-clearance checks to post-facto compliance, ensuring that funds can raise capital and begin operations without unnecessary administrative delays. This change directly responds to feedback from the financial industry regarding the time-to-market for new investment products.
The AIF market in India has experienced exponential growth over the past few years, necessitating a more scalable regulatory system. As of March 31, 2026, the number of registered AIFs in India surged to 1,849, compared to 732 registered funds five years prior. This dramatic increase has put a heavy administrative load on the regulator, causing longer review times for new scheme filings. The GARUDA framework aims to address this bottleneck. SEBI has invited public feedback and suggestions on the consultation paper, keeping the window open for comments until June 1, 2026, before finalising the operational guidelines.
Key Timeline Reforms and Relaxations
The proposed GARUDA framework introduces structured timeline reductions based on the sophistication and risk profile of the target investors. For regular AIF schemes targeted at non-accredited retail or institutional investors, the waiting period to launch a scheme is reduced from the current 30 days to 10 working days after filing the Placement Memorandum (PPM). If the regulator does not raise objections within this period, the fund can commence fundraising. For the first scheme of any newly registered AIF, fundraising is permitted from the date of registration or after 10 working days from filing, whichever is later.
Direct Filing and Self-Certification
To further ease capital access, SEBI has proposed key exemptions for Angel Funds and Accredited Investor-only (AI-only) schemes. Under current regulations, AIFs must route their scheme documents through a registered merchant banker for due diligence, which adds to cost and compliance time. Under the GARUDA framework, managers of Angel Funds and AI-only schemes can file their PPMs directly with SEBI without involving a merchant banker.
This direct filing model replaces third-party certification with internal accountability. Instead of a merchant banker’s due diligence certificate, the fund manager must submit undertakings signed by the Chief Executive Officer (CEO), or equivalent, and the Compliance Officer of the AIF. Once these self-certified documents are submitted, these high-end schemes can begin fundraising almost immediately, bypassing the standard waiting period entirely.
The Evolution of Alternative Investment Funds in India
Alternative Investment Funds represent a class of privately pooled investment vehicles that collect capital from sophisticated Indian and foreign investors. These funds are regulated under the SEBI (Alternative Investment Funds) Regulations, 2012, which replaced the older, fragmented Venture Capital Funds regulations of 1996 to establish a comprehensive legal structure. The regulations segment AIFs into three distinct categories based on their investment strategies and potential economic impact:
| Category | Investment Focus | Key Regulatory Characteristics |
|---|---|---|
| Category I | Startups, early-stage ventures, social enterprises, small and medium enterprises, and infrastructure. | Deemed to have positive spillover effects on the economy; eligible for specific government incentives. |
| Category II | Private equity funds, debt funds, and real estate funds. | Cannot undertake leverage except for day-to-day operational requirements; do not receive special incentives. |
| Category III | Hedge funds and funds using complex trading strategies. | Allowed to employ leverage and trade in derivatives; face closer regulatory scrutiny due to systemic risk. |
Understanding Accredited Investors
The concept of an Accredited Investor was introduced to identify individuals and corporate entities with the financial capacity and knowledge to evaluate complex investment risks. To obtain this status, an investor must be certified by a SEBI-recognized accreditation agency, such as CDSL Ventures Limited or NSDL Database Management Limited.
For individuals, Hindu Undivided Families (HUFs), and family trusts, the eligibility criteria require an annual income of at least ₹2 crore, or a net worth of at least ₹7.5 crore with at least ₹3.75 crore held in financial assets. Alternatively, individuals who earn at least ₹1 crore annually can qualify if their net worth is at least ₹5 crore with ₹2.5 crore in financial assets. For corporate bodies, a minimum net worth of ₹50 crore is required. Within this class, SEBI also regulates Large Value Funds (LVFs), which are schemes where every accredited investor commits a minimum capital of ₹25 crore, allowing for even greater operational flexibility.
A Shift in Regulatory Philosophy
The introduction of the GARUDA framework signifies a fundamental shift in SEBI’s regulatory approach. Historically, the regulator relied on a pre-clearance model, where every document and disclosure was thoroughly audited before an investment scheme could go live. While this approach minimised early errors, it created significant bottlenecks for fund managers looking to capitalise on fast-moving market opportunities. By moving toward a disclosure-led, risk-based model, SEBI is transferring the primary responsibility of compliance onto fund managers and sponsors, relying on their professional diligence.
Under the new model, SEBI will carry out post-facto scrutiny on a sample basis. Instead of reviewing every Placement Memorandum before the launch, the regulator will monitor compliance after the scheme has been rolled out. This risk-based supervision allows SEBI to focus its resources on high-risk areas while allowing low-risk, sophisticated schemes to launch quickly. Fund managers must ensure that their disclosures are accurate and complete. If SEBI detects any regulatory deviations, misstatements, or compliance lapses during its post-launch audits, it will initiate strict regulatory actions and impose penalties on the fund’s management.
Key Takeaways
- The GARUDA regulatory framework was proposed by SEBI on May 20, 2026, to accelerate the launch and approval process of Alternative Investment Fund schemes.
- The framework reduces the waiting timeline for launching regular AIF schemes from 30 days to 10 working days after filing their Placement Memorandum.
- Under the proposal, Angel Funds and Accredited Investor-only schemes are permitted to launch fundraising campaigns almost immediately after filing their documents.
- Managers of Accredited Investor-only schemes and Angel Funds can file their Placement Memorandums directly with SEBI without routing them through a merchant banker.
- Alternative Investment Funds in India are regulated under the SEBI (Alternative Investment Funds) Regulations, 2012, which established Category I, II, and III fund structures.
- To qualify as an Accredited Investor, an individual must have an annual income of at least ₹2 crore or a net worth of at least ₹7.5 crore with ₹3.75 crore in financial assets.
